HMRC chief criticised by MPs amid concerns over tax deduction plan

MPs continue to have "considerable concerns" about proposals for HM Revenue and Customs to be allowed to deduct money directly from debtors' bank accounts.

The proposal - put forward in Chancellor George Osborne's March Budget - came under attack from MPs at a hearing of the House of Commons Treasury Committee today.

HMRC chief executive Lin Homer was forced to reject claims that the move breached Magna Carta protections for the individual against the state.

She confirmed it would enable taxmen to obtain bank and building society statements dating back 12 months - but insisted this was purely to ensure that individuals were not forced into hardship by deductions from their accounts.

The Committee warned in a recent report that the controversial new powers would be "wholly unacceptable" without a requirement for independent approval from a court, ombudsman or tribunal before money is taken.

But Ms Homer rejected this safeguard, which she said would deprive HMRC of any additional powers and give the upper hand to around 17,000 "recalcitrant debtors" who deliberately withhold tax payments in the hope the expense of recovering the money will mount so high it will be written off.

"I believe that for the taxpayer as a whole, it is right that we have sufficient powers to stop these limited numbers of people avoiding paying tax," said Ms Homer.

More than 90 per cent of people pay their taxes, but a minority take the view that they will delay paying for as long as they can get away with it, she said. These debtors owe an average of £5,800, despite the fact that half of them have £20,000 or more in savings and 5 per cent as much as £100,000.

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But following the hearing, chairman Andrew Tyrie made clear the committee was not convinced by her arguments: "The proposal to grant HMRC powers directly to recover money from taxpayers' bank accounts remains of considerable concern to the Treasury Committee in the light of today's hearing.

"Prior independent oversight is essential. Mistakes could have serious financial consequences for taxpayers, and risk undermining public confidence in HMRC."

Ms Homer said HMRC expects to gather an additional £375 million over four years by using the new power, which was similar to systems used in countries including the US, France and Australia, but that she would be "delighted" if she never had to invoke it.

But Tory MP Steve Baker told her he was "horrified" by the plan, while Labour MP George Mudie said that accessing 12 months' bank statements amounted to "an additional intrusion into people's lives".

Liberal Democrat committee member John Thurso said: "We are talking here about the ability for one organisation of state... to have the unique right to go against the Magna Carta charter and all the other things we have established and to go in and seize - without judicial process or review - a bank account.

"I just want to know if it is justified, because my sense is that Parliament is going to reject it."

Mr Thurso said that HMRC was trying to become "judge, jury and executioner" and to remove legal protections from those who it believes owe tax, simply because it was "slow and expensive" to follow the legal processes.

He demanded to know whether the taxman would pay compensation in full if it removed money from people's bank accounts or Isas in error and their house purchase fell through or they missed out on a windfall from rising share prices as a result.

Ms Homer said that the size of any compensation payment was likely to be determined by the courts, adding: "In the rare cases where a mistake is made, we would rectify that. That is an important part of the safeguarding."

She added: "I don't think this is against Magna Carta. I don't think it is substantially different from the PAYE arrangement.

"This is not disputed tax, this is tax that is due, that people who are not subject to PAYE are choosing simply not to pay and they are creating an environment within which the normally very low collection cost of tax is made substantially higher by their action, in a way which in the vast majority of cases is wilful."

People whose bank accounts are targeted would have had the opportunity to challenge the tax demand in tribunal and would have been contacted by HMRC at least four times, and on average nine times, she said. They will be informed that their accounts are being frozen and given 14 days to engage with the taxman before any money is removed.

At least £5,000 will be left in their accounts and HMRC will work with financial institutions to check whether their spending patterns suggest that a larger sum must be left in order to avoid putting them into hardship.